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November 17, 2008

Has the Web and the Blogosphere Ushered in the Death of Radio?
by Reggie Middleton

Radio broadcasting companies, an out-of-favor sector with investors and media consumers, are extremely leveraged and facing difficult business environment.

With the advent of the internet, audio related media distribution barriers to entry have come down dramatically. The dissemination of news has encountered a paradigm shift with the advent of blogs, including the one owned by yours truly. With arguably better content, easier and more customizable access, and a rapidly changing business model that is difficult to grasp by the traditional MSM (mainstream media) management, the Web has literally painted a R.I.P. sign on the coffin covers of many a once might radio station holding company. Are TV station companies next? Did this truly have to come to pass, or was the changing of the guard inevitable? Should Bloomberg, or Murdoch or Curtco Media buy a stake in BoomBustBlog.com to hedge their future?

Radio broadcasting companies had significantly increased their debt levels during consolidation phase that narrowed the industry to just a few big players. Due to difficult capital markets situations borne from the Asset Securitization Crisis these companies are now facing a liquidity squeeze. To add to the fray, the industry is facing new competition from iPods, satellite broadcasters, Web streaming services/technology and mobile phones. In addition to growing competition, the financial crisis which is affecting the U.S. economy is leading to lower demand for advertising, thus adversely affecting the sector's ability to register growth in advertising revenues. Huge debt levels and declines in advertising revenues for radio broadcasters have led to a sharp decline in valuations of the sector players. While the radio broadcasting companies continue to face a difficult operating environment and are under huge debt liabilities, most of these companies have already witnessed a decline of more than 90% in their stocks and are trading at less than a dollar per share suggesting that much of the negative outlook regarding their future prospects is already factored in their current share price. Registered users can download the accompanying spreadsheet with additional metrics. Radio Broadcaster Snapshot (1017 kB 2008-11-17 12:55:13)

Ticker	Last price	Shares O/S	Market Cap	1 m	3 m	1 yr	EV / EBITDA	P/E	P/S	P/B	P/ Adj BV
EMMS US Equity	0.40	35.6	14.5	0%	-2%	-91%	10.48	N/A	0.04	0.06	-0.16
CDL US Equity	0.18	263.9	48.6	-10%	-1%	-93%	8.63	N/A	0.05	0.13	-0.22
ETM US Equity	0.70	38.7	26.5	-50%	-6%	-96%	N/A	1.03	0.06	0.05	-0.69
CCO US Equity	5.11	355.5	1,817.6	-16%	-12%	-81%	5.12	8.64	0.53	0.28	31.26
CMLS US Equity	0.62	43.6	26.3	-70%	-85%	-94%	73.11	N/A	0.08	0.19	-0.46

Emmis:

EMMIS has total assets of $1,147 mn including intangibles (FCC license) of $801 mn and goodwill of $81 mn.
The company has total shareholders' equity of $254 mn including $270 mn of accumulated deficit.
The company is highly leveraged with debt-to-equity of 174%. Emmis has debt-to-FCF and debt-to-OCF of 11.0x and 9.4x, respectively.
The company's net income has declined consecutively since 2005 declining from $358 mn in 2005 to $114 mn in 2006 and further to a loss of $1 mn in 2007.
The stock has declined 91% over the past one year and is currently trading at $0.40 with P/B of 0.06x and P/S of 0.04x

Ticker	Debt / Market Cap	Debt / Equity	Debt / Assets	Debt / TTM EBITDA	Debt / FCF	Debt / OCF
EMMS	3026%	174%	38%	7.9	11.0	9.4
CDL	4590%	593%	66%	8.7	14.0	13.0
ETM	3470%	168%	54%	-27.2	10.9	9.8
CCO	143%	117%	42%	2.9	6.2	3.7
CMLS	2751%	492%	67%	62.4	17.6	15.7

Citadel Broadcasting:

Citadel Broadcasting has total assets of $3.4 bn including $2.0 bn of intangibles representing FCC license and $0.7 bn of goodwill.
The company has an accumulated deficit of $1.7 bn and total shareholders' equity of $376 mn.
The debt-to-equity and debt-to-assets is at 593% and 66%, respectively. Citadel's debt-to-FCF is at 14.0x and debt-to-OCF is at 13.0x.
The company's revenues have increased nearly 62% in 2007 and first half of 2008 due to acquisition of ABC Radio on June 12, 2007. However, in 3Q2008 the company's revenues declined 11% y-o-y.
The company's gross margins have declined to 59% in 3Q2008 as against 63% in 3Q2007.
The share price has witnessed a decline of 93% over the past one year and is trading at 18 cents. At current price the stock trades at P/S of 0.05X, and P/B of 0.13x.

Gross margin
Ticker	2005	2006	2007	2Q-07	3Q-07	2Q-08	3Q-08
EMMS	33.2%	28.8%	25.3%	27.2%	27.9%	27.4%
CDL	71.7%	71.3%	64.8%	71.4%	63.3%	61.9%	59.4%
ETM	42.2%	40.9%	39.5%	40.1%	41.5%	39.8%	38.3%
CCO	47.4%	45.5%	45.1%	48.7%	46.9%	46.4%	43.1%
CMLS	30.5%	35.7%	35.6%	38.5%	37.7%	36.3%	36.5%

Net income margin
Ticker	2005	2006	2007	2Q-07	3Q-07	2Q-08	3Q-08
EMMS	94.8%	31.6%	-0.4%	14.7%	0.1%	3.7%
CDL	16.6%	-11.1%	-178.6%	2.7%	-186.4%	-109.8%	13.1%
ETM	18.1%	10.9%	-1.8%	-10.0%	11.4%	-77.8%	3.7%
CCO	2.3%	5.3%	7.5%	8.2%	6.7%	8.8%	1.1%
CMLS	-64.9%	-13.2%	-68.2%	2.9%	-83.8%	36.2%	7.5%

Entercom:

In 3Q2008 Entercom's revenues and net income declined 6% and 70%, respectively. Also, in 3Q2008 the company suspended dividend payment due to difficult business conditions.
The company has total assets of $1.7 bn including FCC license of $1.5 bn.
Entercom's total shareholders' equity including accumulated deficit of $37 mn stood at $547 mn at the end of 3Q2008.
The company has debt-to-equity of 168% and has debt-to-FCF and debt-to-OCF of 10.9x and 9.8x, respectively,
The stock price has declined 96% over the past one year and is currently trading at 70 cents with a P/S and P/B of 0.06x and 0.05x, respectively.

	Revenue growth				Gross profit growth				Net Income growth
Ticker	2006	2007	2Q-08	3Q-08	2006	2007	2Q-08	3Q-08	2006	2007	2Q-08	3Q-08
EMMS	-5%	0%	-2%	N/A	-17%	-12%	-1%	N/A	-68%	N/A	-75%	N/A
CDL	3%	66%	62%	-11%	3%	51%	41%	-16%	N/A	-2577%	N/A	N/A
ETM	2%	7%	-1%	-6%	-1%	3%	-2%	-13%	-39%	N/A	-671%	-70%
CCO	9%	13%	9%	-1%	4%	12%	4%	-9%	149%	61%	17%	-83%
CMLS	2%	-2%	-4%	-5%	19%	-2%	-10%	-8%	N/A	-407%	1093%	N/A

Clear Channel:

Clear Channel reported a 1% and 83% decline in revenues and net income in 3Q2008, respectively.
Clear Channel's gross margin has declined to 43% in 3Q2008 as against 49% in 3Q2007.
The Company has debt-to-equity and debt-to-assets of 117% and 42%, respectively with debt-to-FCF and debt-to-OCF of 6.2x and 3.7x, respectively.
The stock has witnessed a decline of 81% over the past one year and is trading at $5.1 per share. At current price the share commands P/S and P/B multiple of 0.53x and 0.28x., respectively.

Cumulus Media:

Cumulus is highly leveraged with debt-to-equity of 492% and debt-to-assets of 62%.
The company has total assets of $1,085 mn including intangibles (including license) and goodwill of $883 mn.
As of September 2008, Cumulus had an accumulated deficit of $558 mn and total shareholders' equity of $147 mn while Cumulus had total debt of $725 mn. The company's term loan facility is expected to mature on June, 2014.
As a result of declining ad spends, the company's revenues are facing downward pressure. The company's revenues have witnessed a decline of 2% in 2007 and y-o-y decline of 4% and 5% in 2Q2008 and 3Q2008. Further, based on management guidance revenues are expected to decline between 9.0% and 11.0% in 4Q2008 over 4Q2007.
The company has high debt-to-FCF and debt-to-operating cash flow (OCF) at 17.6x and 15.7x, respectively.
The stock has witnessed a decline of 94% over the past one year and is currently trading at $0.62. The stock at the current price is trading at P/S of 0.08x, P/B of 0.19x.

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

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